Slowdown in household income growth continues in 2018

Today’s report from the Census Bureau shows a marked slowdown in median household income growth relative to previous years. Median household incomes rose only 0.9%, after rising 1.8% in 2017 and following impressive gains in the two years prior: a 5.1% gain in 2015 and a 3.1% gain in 2016. Median nonelderly household income saw a similar rise of 1.0% this year after gaining 2.5%, 4.6%, and 3.6% in the prior three years, respectively.

After falling for both men and women by 1.1% each in 2017, inflation-adjusted full-time annual earnings for both men and women rose in 2018, by 3.4% and 3.3%, respectively. Men’s earnings are finally above both their 2007 and 2000 levels.

While the gains in household income are markedly slower than in previous years, they nonetheless represent another small step toward reclaiming the lost decade of income growth caused by the Great Recession. Part of the slowdown in income growth in 2017 and 2018 relative to 2015 and 2016 is driven by increases in the pace of inflation. However, as discussed below, this year’s report reminds us that the vast majority of household incomes (when corrected for a break in the data series in 2013) have still not fully recovered from the deep losses suffered in the Great Recession.

Nonelderly household incomes improve

The Census data show that from 2017 to 2018, inflation-adjusted median household income for nonelderly households (those with a householder, or head of household, younger than 65 years old) increased 1.0%, from $70,944 to $71,659, as shown in Figure A. Median nonelderly household income is an important measure of an improving economy, as those households depend on labor market income for the vast majority of their income. This continued, albeit much slower, increase after larger gains in the prior three years is better than nothing. Median household income for nonelderly households, which finally recovered to its pre-recession level in 2017, was 1.2%, or $876 above its 2007 level in 2018. It’s important to note that the Great Recession and its aftermath came on the heels of a weak labor market from 2000 to 2007, during which the median income of nonelderly households fell significantly, from $73,322 to $70,783—the first time in the post–World War II period that incomes failed to grow over a business cycle. Altogether, from 2000 to 2018, the median income for nonelderly households fell from $73,322 to $71,659, a decline of $1,663, or 2.3%. In short, the last four years should not make us forget that incomes for the majority of Americans have experienced a lost 18 years of growth.

Notes: Because of a redesign in the CPS ASEC income questions in 2013, we imputed the historical series using the ratio of the old and new method in 2013. Solid lines are actual CPS ASEC data; dashed lines denote historical values imputed by applying the new methodology to past income trends. The break in the series in 2017 represents data from both the legacy CPS ASEC processing system and the updated CPS ASEC processing system. Nonelderly households are those in which the head of household is younger than age 65. Shaded areas denote recessions.

Source: EPI analysis of Current Population Survey Annual Social and Economic Supplement Historical Income Tables (Tables H-5 and HINC-02)

Income gains and losses by income group

Incomes at the top remain much higher than those at the middle or bottom of the household income distribution, as shown in Figure B. Changes to the data processing make it difficult to measure changes over time; this is particularly relevant with regard to changes in the top-coding procedure, which affects the highest-income earners.

Median household income currently sits at $63,179 in 2018. The average income of households in the middle (third) fifth of the income distribution is a similar amount, $63,572. Either way, typical incomes for households fall somewhere between $63,000 and $64,000. Top 95th percentile income—that above 95% of all households—came in at nearly $250,000 in 2018 (or, more precisely, $248,728). But the average income of the top 5% of households is far higher, measuring $416,520. This means that the average income of the top 5% is more than six times higher than that of typical households.

If we look at the bottom of the income distribution, the lowest quintile’s average income is $13,775. That’s not a typo. The bottom 20% of the U.S. household income distribution has an income of $13,775 per year in 2018. The poverty threshold for a family of four currently sits at $25,465, nearly twice the average income of the bottom fifth. And the top 5% of households have incomes 30 times higher; said another way, the bottom fifth of households have incomes only 3.3% of those at the top.

Earnings rose in 2018

Besides lower employment and hours in the aftermath of the financial crisis, the key driver of the post-2000 income trends highlighted above has been anemic growth of hourly wages over the last 18 years. The continued fall in unemployment over the last couple of years would be expected to yield solid wage growth. After declining in 2017, both full-time, year-round men’s and women’s earnings rose in 2018. The median man working full time, full year experienced an increase in real earnings of 3.4%, from $53,458 to $55,291, in 2018, as shown in Figure C. The median woman working full time, full year saw a similar increase of 3.3%, from $43,658 to $45,097. For this group of full-time workers, men’s earnings have finally recovered to their 2007 level (by 1.0%), while women’s earnings are now 5.8% above their 2007 level. Looking over a longer horizon, however, the trends are starkly disappointing. As women’s educational attainment increased and their job opportunities expanded, the median woman working full time, full year saw her earnings grow from $32,092 in 1973 to $42,275 in 2002, and then stagnate in the 2002–2007 recovery, reaching only $42,616 by 2007. Since the recession that began at the end of 2007, women’s earnings have recovered, reaching $45,097 in 2018. Though men also experienced increases in educational attainment over this period, full-time men’s earnings dropped from $56,666 in 1973 to $54,769 in 2007, then fell further in the recession and have finally recovered to $55,291 in 2018. Since 1973, the median man working full time, full year has seen no sustained earnings growth.

Note: Earnings are wage and salary income. Shaded areas denote recessions. Because the redesign of the CPS ASEC in 2013 did not directly affect earnings, the data for 2013 are an average of the new and old series. The break in the series in 2017 represents data from both the legacy CPS ASEC processing system and the updated CPS ASEC processing system.

Source: EPI analysis of Current Population Survey Annual Social and Economic Supplement Historical Income Tables (Table P-38)

While the earnings of full-time, full-year women workers have improved since 1973, progress in closing the gender earnings gap slowed significantly over the last decade. The gap between women’s and men’s earnings shrunk from 43.4% in 1973 to 26.3% in 2000 (an average annual change of 0.6 percentage points), but shrunk only 7.8 percentage points from 2000 to 2018 (an average annual change of 0.4 percentage points). Women’s earnings were 26.3% lower than men’s in 2000 and 18.4% lower in 2018. Because men and women experienced very similar increases in earnings, the gender earnings gap remained essentially unchanged between 2017 and 2018. The economy does have the potential to increase men’s and women’s wages and close the gender wage gap. Between 2014 and 2015, for instance, both men’s and women’s median wages did rise, while the gender wage gap narrowed.

Stay tuned—we will be reporting on incomes, earnings, and poverty by race and ethnicity, as well as a more in-depth look at wage differentials among men and women and among black and white workers.

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